Tuesday, March 15, 2005

Change at LANL Could Be Costly

A change in management at Los Alamos National Laboratory will likely mean the new lab operator will have to pay some state gross receipts taxes, resulting in a significant increase to state revenue.

Billed by federal lawmakers as a means to reduce taxpayer costs and increase efficiencies, the competition for the LANL management contract so far looks like it will cost taxpayers more than if the University of California had continued to run the lab, as it has done for 60-plus years.

Federal officials have already upped the fee for running the nuclear weapons research facility from $8 million a year to a maximum potential of about $60 million a year, still short of what many industrial bidders deem optimal.

With the additional burden of a gross receipts tax, the increased taxpayer costs for LANL management could reach $100 million a year.

The management fee increase was proposed by federal officials as a way to bring in bidders for the LANL contract. Several top competitors, including Lockheed Martin, Batelle and the University of Texas System, among others, have dropped out because the financial risks were deemed too great.

Now, Jan Goodwin, Secretary of the state's Taxation and Revenue Department, is reminding federal officials that any new LANL management arrangement that includes a for-profit company means at least some state gross receipts taxes will have to be paid.

"Non-profit organizations that intend to partner with a for-profit entity for any part of the lab's operations should expect to pay New Mexico gross receipts tax, relative to the portion of the contract performed by the for-profit entity," she wrote federal officials in January.

She advised that "potential applicants, regardless of their corporate structure, should expect to have their tax status carefully monitored by the state of New Mexico."

Under state law, non-profit organizations such as the University of California, LANL's current manager, are exempt from paying gross receipts taxes, though LANL officials have said the laboratory indirectly pays about $30 million in gross receipts taxes through reimbursements to its for-profit contractors subject to the tax.

For years, state lawmakers have discussed the possibility of changing the tax-exempt status of non-profits as a way to increase state revenue. In LANL's case, gross receipts taxes on its $2 billion budget have been estimated at about $80 million a year or more.

Los Alamos County's gross receipts tax rate is 6.5625 percent.

How the additional costs of state gross receipts taxes will be factored into LANL's future budgets— whether into the lab's overall federal budget appropriation or by making the management team itself responsible for the costs— has not been announced.

How the tax would be levied against a limited liability corporation, which federal officials have proposed should be the legal structure of the next LANL manager, has not been determined either.

That a for-profit industrial partner will be part of LANL's next management mix is nearly a certainty, given Energy Department preference for privatization as a means to save money.

In years past, LANL officials have fought to prevent a change in the lab's tax status, asserting such a move would have a devastating ripple effect on the economy of northern New Mexico.

When state legislation was proposed in 2003 to make LANL liable for gross receipts taxes, LANL officials said such a move would result in at least 370 lost LANL jobs and the loss of another 750 jobs tied to LANL contractors.

Left unsaid in the piece is that LANL (mis)management cost the taxpayers $500 million last year alone. Reason enough to bid the contract.

As to the GRT, Sandia pays it, and they seem to do just fine. LANL would, as Sandia does, simply pass the GRT through to the DOE as part of overhead expenses. The non-payment of the GRT is simply as subsidy of the Federal government by one of the poorest states. This is stupidity squared!! The reason LANL management opposes the tax is that they think that not paying it keeps their overhead down, thus conferring some advantage. LANL overhead is so huge, for other reasons, that this is a joke. Sandia Lab pays the GRT and is much more "competitive" than LANL. Nuff said....

Privatization doesn't save money, that has been demonstrated many times, but it does generate rewards for those who donated big bucks to the President's campaign funds and those of his chronies. On the other hand, taxing LANL, no matter who runs it, is a good idea. It is very unlikely that jobs will be reduced by the gross receipts tax -- the government will just pay more to get its work done. On the other hand, the town of Los Alamos and the State of New Mexico are very poor. As DOE has withdrawn its funding for the town and schools in Los Alamos, the town has had trouble funding its local problems. Just recently prices of numerous recreation programs in Los Alamos county have been doubled, tripled and quadrupled depending on the program. This is outrageous when the town is home to a $2 billion industry. No matter who wins the contract, Gross Receipts Tax should be applied to make up for the subsidies DOE used to pay in lieu of taxes.

Let's go over these cost figures one more time. The article puts the new cost of operating the Lab at $100 million when taxes are added to the$60 million operations fee. Now add in the estimated $100 million/yrcost for the new DOE-controlled pensions. That puts us at $200 millionper year. And to think, UC was running the lab for the miniscule feeof only about $8 million per year, pensions included! Let's see, wecould go back to operating the Lab for $ 8 million, or make the taxpayers shell out over $200 million per year. I don't know? It's such a hard choice. I'm not very good at math. What do you people overat DOE think we should do?

To the poster at 10:38 am. Let me guess. You don't work for LANL, do you? You must work for LA county. The GRT will not be government "funny money". It will add costs to LANL projects. This will not be good thing for LANL, or for the projects which are done here.

Unfortunately, the LANL budget is a zero-sum game. If ten percent of the budget ($200 Million) is diverted to GRT and fees, that points directly to a 10% RIF. Congress is not going to augment the LANL budget by ten percent to compensate.

Remember that 5% of this goes to the state, so only 1.5625% stays within LA County to pay for the tax-based services and debt prescribed to us by the County Council along with some of the tax-base approved by county voters for school debt and various other local programs.

I couldn't clearly understand the splits of the GRT between the county and the state as presented on the state's web site. It looks like there is a 0.5% slosh given up by the state in favor of the county. If true, then it appears possible that the state will take only 4.5%, thus leaving 2.0625% to the county.

The 10:44 AM poster has it right. In the end, open bidding of the LANL contract will cost ~$200M per year. However, it may be worth that to get rid of Admiral Butthead and the UC Management that put him in place.

Sorry to tell you this, but you are already paying for those black 'uber-bags' through your exorbitant county utility bills. It's probablywrapped up in the garbage bill, which, BTW, is is getting ready to go up in monthly cost by a fairly high margin. I have recently begunto suspect that some people who work for LA county, perhaps along with some of our retired folks who never tire of spending "other people'smoney" on big county ventures, may be looking at the new LANL GRT aspure manna from heaven. Lots of Congressmen over in the New MexicoRoundhouse have been crying out for taxation of LANL for many years.It looks like these people will finally get their wish with thenew contract.

Under the new contract to operate LANL I know that (as eluded to in the Draft RFP) the customer (NNSA) will not increase the Lab’s budget, but, instead, expects the GRT and management fee to be taken out of the existing budget allocation. In addition, the customer also plans on cutting the Lab’s budget over the next 5 years. Let’s see, if I was a corporation who just inherited the management of LANL, what would I do to make up the $200M that goes to GRT and fee? (I must keep a significant portion of the fee within my company to satisfy my shareholders on the profitability this venture.) First I would replace all the current management with “my” management who are trained to think in a “business-like” way. A “business-like” way would be: satisfy all the customer needs and deliverables while maximizing profits. That would mean I would bring in between 100 and 200 of “my” people to run the Lab. Many of the Lab’s management, probably down to the Group Leader level, will be looking around for something else to do. Reorganizations and consolidations would be common.

Some other “business-like” steps I would take:

I would increase worker efficiency by first reducing duplication across the board (RIFs).I would not replace the large number or retiring and terminating personnel leaving during the contract transition period, but instead “backfill” with those who jobs will be eliminated by my “worker efficiency improvement” efforts. I would also not rehire retirees and terminations, except in part-time, short-term mentoring/training roles. I would drop all R&D that is not customer-mission specific and redeploy that workforce. I would close all outlying sites (for example, have only one firing site) and also probably close LANSCE. I would pull all offices in town site locations back to DOE property. I would move most “testing” activities to Nevada and deploy personnel to Nevada only to gather data at the new “testing” facilities. (These facilities will be built and operated by another contractor; paid for by cost savings at LANL.) I would contract out all environmental remediation work and let that sub-contractor deal with the regulator agencies. I would ……………………! You get my drift. With Lab. safety and security being the best in the complex, if not the nation, the customer will love me and maybe even increase my fee (the shareholders will love that!!!!)

Be prepared for a significantly different Laboratory where business overrides science.

And don't forget, 8:18 PM, there are too many middle-aged white men working at LANL today. The new LANL will be rewarded for hiring a workforce that "looks like America," just like they did when the bureaucrats took over NASA from the engineers.

The good news is that, unlike NASA, the public will never know the damage done. By the time the military discovers the weapons don't work, it will be much too late to do anything about it.

Look around at all the failed big companies, governmet programs etc. We are a dying breed. Mediocrity and bloated beauracracy are coming our way and in some cases already here. Its really going to suck working here. And the sad thing is the management and government really does not give a crap about its demise. LLNL your next.....